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Wall Street delivered a mixed performance last week due to the steepening of the yield curve. The S&P 500 added 0.7%, the Dow Jones advanced 2.1%, the Nasdaq lost 0.6% and the Russell 2000 jumped 1.5% in the week under review. In fact, the Dow Jones Index logged its first 10-day rally since 2017.
A spike in long-term U.S. treasury bond yields helped the value-centric Dow Jones gain precedence over the growth-oriented Nasdaq. A decline in shares of tech biggies like Tesla and Netflix also cast a pall over Nasdaq.
The benchmark U.S. treasury yield was 3.84% on Jul 21, 2023, while rates started the week at 3.81%, hit a weekly closing low of 3.75% on Jul 19 and a high of 3.85% on Jul 20. Since value stocks perform better in a rising rate environment than growth stocks, the Dow Jones had every reason to log a jump last week. The trend may continue as the Fed is likely to hike rates this month amid a resilient economy and sticky inflation.
Additionally, earnings optimism, especially in the banking and healthcare sector, instilled confidence in the blue-chip index Dow Jones. Rounds of solid corporate earnings from Dow constituents like Johnson & Johnson (JNJ), Travelers (TRV), UnitedHealth (UNH), Morgan Stanley (MS) and Bank of America (BAC) drove the blue-chip index higher. Further, improving economic indicators, such as strong job numbers and rising consumer spending, helped the Dow Jones to move higher.
U.S. consumer prices in June registered their smallest annual increase in over two years, reviving hopes that the Fed was nearing the end of its interest rate increases. Easing inflation indicates that the economy is stabilizing and interest rates may decline.
Consumer sentiment, as indicated by the University of Michigan preliminary index, jumped to an almost two-year high in July. Meanwhile, homebuilder sentiment also climbed for the seventh straight month and is hovering at the highest level since June 2022.
Against this backdrop, we highlight a few best-performing inverse/leveraged ETFs of last week.
Big banking earnings came in upbeat in the ongoing reporting season. While this lifted the mood around the overall financial sector, a steepening yield mainly perked up regional banks. A resilient consumer base and a better-than-expected U.S. economic recovery favored the regional bank investing. A cheaper valuation was another positive for the space (read: Regional Bank ETFs: Value Play or Value Trap?).
Oil
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 14.0%
The price of oil has remained strong lately, and there is potential for further increase as global crude consumption is expected to rise. Positive projections for global oil demand, a weaker U.S. dollar, and the ongoing supply cuts from OPEC+ have contributed to these price trends.
Meanwhile, oil stored at Cushing, OK, which serves as the delivery point for U.S. stocks, witnessed a considerable decrease of 2.9 million barrels from the previous week, bringing the total to 38.3 million barrels. This decline marked the largest weekly drop since Oct 22, 2021.
Natural Gas
ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report) – Up 13.7%
Thanks to intense heat, demand for air-conditioning has surged. With natural gas powering nearly 40% of U.S. utility-scale electricity generation as per the Energy Information Administration, the scorching heat means higher cooling demand and the resultant usage of natural gas.
Geopolitical factors add to the potential for price growth. Europe's heavy dependence on natural gas supplies from Russia has been disturbed due to the ongoing war in Ukraine and the associated sanctions on Russia. As a result, the United States is under pressure to supply liquified natural gas to countries affected by the supply disruption (read: El Nino Likely to Boost Natural Gas ETFs in 2H23).
Upbeat earnings from J&J and United Healthcare shored up the healthcare space. J&J came up with upbeat earnings and is now forecasting full-year sales of $98.80 billion to $99.80 billion, about $1 billion higher than the guidance provided in April. UnitedHealth, too, beat on both lines and boosted guidance (read: Stocks in Focus on Dow Jones ETF's First 9-Day Run Since 2017).
Inverse FANG+
MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 8.9%
Growth stocks like FANG+ slumped last week while earnings weakness weighed heavily on Netflix shares (which is a FANG+ component), which declined 10.5% last week. The Tesla stock, too, dropped 5%. No wonder, FANG+’s inverse/leveraged version scaled up last week.
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5 Best Inverse/Leveraged ETF Areas of Last Week
Wall Street delivered a mixed performance last week due to the steepening of the yield curve. The S&P 500 added 0.7%, the Dow Jones advanced 2.1%, the Nasdaq lost 0.6% and the Russell 2000 jumped 1.5% in the week under review. In fact, the Dow Jones Index logged its first 10-day rally since 2017.
A spike in long-term U.S. treasury bond yields helped the value-centric Dow Jones gain precedence over the growth-oriented Nasdaq. A decline in shares of tech biggies like Tesla and Netflix also cast a pall over Nasdaq.
The benchmark U.S. treasury yield was 3.84% on Jul 21, 2023, while rates started the week at 3.81%, hit a weekly closing low of 3.75% on Jul 19 and a high of 3.85% on Jul 20. Since value stocks perform better in a rising rate environment than growth stocks, the Dow Jones had every reason to log a jump last week. The trend may continue as the Fed is likely to hike rates this month amid a resilient economy and sticky inflation.
Additionally, earnings optimism, especially in the banking and healthcare sector, instilled confidence in the blue-chip index Dow Jones. Rounds of solid corporate earnings from Dow constituents like Johnson & Johnson (JNJ), Travelers (TRV), UnitedHealth (UNH), Morgan Stanley (MS) and Bank of America (BAC) drove the blue-chip index higher. Further, improving economic indicators, such as strong job numbers and rising consumer spending, helped the Dow Jones to move higher.
U.S. consumer prices in June registered their smallest annual increase in over two years, reviving hopes that the Fed was nearing the end of its interest rate increases. Easing inflation indicates that the economy is stabilizing and interest rates may decline.
Consumer sentiment, as indicated by the University of Michigan preliminary index, jumped to an almost two-year high in July. Meanwhile, homebuilder sentiment also climbed for the seventh straight month and is hovering at the highest level since June 2022.
Against this backdrop, we highlight a few best-performing inverse/leveraged ETFs of last week.
Top-Performing Inverse/Leveraged ETFs
Banks
Direxion Daily Regional Banks Bull 3X Shares (DPST - Free Report) – Up 23.2%
Big banking earnings came in upbeat in the ongoing reporting season. While this lifted the mood around the overall financial sector, a steepening yield mainly perked up regional banks. A resilient consumer base and a better-than-expected U.S. economic recovery favored the regional bank investing. A cheaper valuation was another positive for the space (read: Regional Bank ETFs: Value Play or Value Trap?).
Oil
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) – Up 14.0%
The price of oil has remained strong lately, and there is potential for further increase as global crude consumption is expected to rise. Positive projections for global oil demand, a weaker U.S. dollar, and the ongoing supply cuts from OPEC+ have contributed to these price trends.
Meanwhile, oil stored at Cushing, OK, which serves as the delivery point for U.S. stocks, witnessed a considerable decrease of 2.9 million barrels from the previous week, bringing the total to 38.3 million barrels. This decline marked the largest weekly drop since Oct 22, 2021.
Natural Gas
ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report) – Up 13.7%
Thanks to intense heat, demand for air-conditioning has surged. With natural gas powering nearly 40% of U.S. utility-scale electricity generation as per the Energy Information Administration, the scorching heat means higher cooling demand and the resultant usage of natural gas.
Geopolitical factors add to the potential for price growth. Europe's heavy dependence on natural gas supplies from Russia has been disturbed due to the ongoing war in Ukraine and the associated sanctions on Russia. As a result, the United States is under pressure to supply liquified natural gas to countries affected by the supply disruption (read: El Nino Likely to Boost Natural Gas ETFs in 2H23).
Healthcare
Direxion Daily Healthcare Bull 3x Shares (CURE - Free Report) – Up 10.3%
Upbeat earnings from J&J and United Healthcare shored up the healthcare space. J&J came up with upbeat earnings and is now forecasting full-year sales of $98.80 billion to $99.80 billion, about $1 billion higher than the guidance provided in April. UnitedHealth, too, beat on both lines and boosted guidance (read: Stocks in Focus on Dow Jones ETF's First 9-Day Run Since 2017).
Inverse FANG+
MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD - Free Report) – Up 8.9%
Growth stocks like FANG+ slumped last week while earnings weakness weighed heavily on Netflix shares (which is a FANG+ component), which declined 10.5% last week. The Tesla stock, too, dropped 5%. No wonder, FANG+’s inverse/leveraged version scaled up last week.